Mastercard preparing for a future of crypto

Mastercard preparing for a future of crypto

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Mastercard has revealed preparations are underway for the “future of crypto and payments”, hoping to start supporting select cryptocurrencies directly on its network later this year.

“This is a big change that will require a lot of work. We will be very thoughtful about which assets we support based on our principles for digital currencies, which focus on consumer protections and compliance,” a blog post penned by Mastercard’s digital asset and blockchain VP Raj Dhamodharan says.

“Whatever your opinions on cryptocurrencies – from a dyed-in-wool fanatic to utter sceptic – the fact remains that these digital assets are becoming a more important part of the payments world.”

Must read: Cryptocurrency 101: What every business needs to know

Dhamodharan said Mastercard is seeing cardholders buy crypto assets and that it’s also seeing use of crypto cards to access these assets and convert them to traditional currencies for spending across its network.

“Our philosophy on cryptocurrencies is straightforward: It’s about choice,” he said. “Mastercard isn’t here to recommend you start using cryptocurrencies. But we are here to enable customers, merchants, and businesses to move digital value.”

The company believes progressing work on crypto on its network will create a lot more possibilities for shoppers and merchants. But not all cryptocurrencies will be supported, as many of the digital assets in circulation still need to tighten their compliance measures before they can meet Mastercard’s requirements.

“We expect consumers and the ecosystem as a whole will start to rally around the crypto assets that offer reliability and security. It’s those very same stablecoins that we expect to bring into our network,” Dhamodharan said.

See also: 2020’s worst cryptocurrency breaches, thefts, and exit scams

“We are already working hard to provide this consumer choice for cryptocurrencies.”

Before cryptocurrency can become transacted on the Mastercard network, the company will need to determine consumer protections, including privacy and security of consumers' information; strict compliance protocols, including Know Your Customer, to snuff out illegal activity and deception in payment networks; the digital assets must follow local laws and regulations in the regions they are used; and ensure the stability of the cryptocurrency, to some degree.

Mastercard last year teamed up with Wirex and BitPay to create crypto cards that allow people to transact using their cryptocurrencies; it then joined forces with cryptocurrency exchange LVL to do much of the same.

In these instances, however, cryptocurrencies don’t move through the Mastercard network, rather its partners convert the digital assets to traditional currencies, then transmit them through to the Mastercard network.

“Our change to supporting digital assets directly will allow many more merchants to accept crypto – an ability that’s currently limited by proprietary methods unique to each digital asset,” Dhamodharan explained. “This change will also cut out inefficiencies, letting both consumers and merchants avoid having to convert back and forth between crypto and traditional to make purchases.”

In addition to forging further crypto exchange partnerships, Mastercard is also working with several major central banks around the world as they respectively review plans to launch new digital currencies.

Mastercard boasts 89 blockchain patents, with an additional 285 blockchain applications pending.

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Mastercard Will Let Merchants Accept Payments in Crypto This Year

Mastercard is planning to give merchants the option to receive payments in cryptocurrency later this year.

According to a source familiar with the matter, the functionality will see Mastercard customers’ digital currency payments settled in crypto at participating merchants, a first for the financial giant. The company has not yet disclosed which digital currencies it intends to support, or where.

The details shed new light on CEO Michael Miebach’s Q4 pledge to integrate digital currency payments “directly on our network” in a move the new chief, helming his first earnings call on Jan. 28, said will provide maximal flexibility to customers and merchants alike.

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Previously, Mastercard supported limited cryptocurrency transactions through its cryptocard partners Wirex and Uphold. But those programs only cover payment, not settlement; the coins are converted to fiat currency well before reaching the merchant.

The new initiative promises to upend that dynamic among the store owners and businesses who opt in. They will be able to conduct their business beyond the bounds of the fiat ecosystem, assuming, of course, their customers have crypto they’re willing to spend.

That’s hardly a safe bet given the buy-and-hold mantra pervading the world’s largest cryptocurrency. The source pointed out most bitcoin buyers primarily treat their coins as investment vehicles, not payment tools. And the source underscored there’s no guarantee Mastercard’s crypto settlement initiative will support bitcoin.

Instead, cryptos will be evaluated against Mastercard’s 2019 “Principles for Blockchain Partnerships” framework, the source said. Released in the wake of Mastercard’s Libra exit, the document placed emphasis on stability, consumer protection and regulatory compliance in vetting potential partners.

“Many of today’s 2,600 digital currencies today fail to do this,” Mastercard said at the time.

Relatively few merchants currently accept crypto, bitcoin or no. Tesla’s stated plans to sell cars for bitcoin remains a hypothetical. A widespread crypto economy is still far from reality.

Read more: Mastercard President Says Crypto Patents Will Pay Off When Central Bank Digital Currencies Arrive

But Mastercard has been laying the groundwork for that future through years of patents around the digital currency space. The company said it holds 89 blockchain patents and is waiting for approval on an additional 285 around the world.

In the U.S. those filings have included: methods to keep crypto transactions private, on-chain credit card payment verification, instant blockchain payment processing and how to handle crypto refunds, among others.

Mastercard first filed a patent for handling bitcoin payments in 2013 but abandoned that effort in 2015. It began hiring a team of wallet developers and crypto veterans in 2019. The company now hosts a platform through which central banks can test digital currencies.